Struggling phone maker Nokia has reported a profit for the last quarter of 2012, compared to a £633m loss a year earlier.

The Finnish firm said its fourth quarter profit was 202m euros (£170m), but revenue fell 20% as it failed to make gains in the fiercely competitive smartphone market.

Nokia said that revenue dropped to 8bn euros (£6.75bn) from 10bn euros (£8.45bn) as smartphone sales plunged 55% from a year earlier.

It also gave a grim outlook, saying it expects operating margins in the first quarter of this year to be "approximately negative 2%, plus or minus four percentage points".

It cited increased competition and lower-than-expected demand for its flagship Lumia phones and cheaper Asha models.

Nokia sold 15.9 million smartphones in the quarter, down from 19.6 million a year earlier, including 4.4 million Lumia phones.

In all, it sold 45 million mobile phones in the period, 15% fewer than in 2011.

Chief executive Stephen Elop said he was encouraged that the company's strategy had reached "underlying profitability" and strengthened its financial position but cautioned that more cutbacks could be expected.

"We remain focused on moving through our transition, which includes continuing to improve our product competitiveness, accelerate the way we operate and manage our costs effectively," Mr Elop said.

The company's share price dropped more than 3% in early afternoon trading in Helsinki.

Nokia's position in the smartphone market shadows the position held by Samsung and Apple, as the larger firms battle it out for supremacy.